Companies’ Auditor Selection Processes: A Framework and Systematic Literature Review

Abstract

SUMMARY Drawing from regulations, practice guidance, and academic research, we develop a framework to understand auditor selection: inputs, process steps (tendering, proposals, presentations, and deliberation and recommendation), and outputs. We use this framework to organize our systematic literature review on companies’ auditor selection process (i.e., the process steps to evaluate prospective external auditors and hire one). Our review focuses on evidence of process steps to identify key actors, activities, decision factors, and expectations during auditor selection. We consider research findings in light of practice guidance. The literature indicates that the selection process consumes substantial resources and is essential to auditor-client matching. Most studies use archival data to infer aspects of the selection process from associations between publicly observable auditor and company characteristics and auditor appointment outcomes. We suggest promising directions for conducting future research with complementary methods. Our review provides valuable insights into companies’ auditor selection practices and auditor-client relationship dynamics. JEL Classifications: G34; M21; M42.